Zara's International Business: Strategies, FDI, and Challenges Report

This report provides an in-depth analysis of Zara's international business operations. It begins with an executive summary defining international business and highlighting the importance of effective resource management in global operations. The report uses Zara, a leading high-end fashion retailer, as a case study to examine the challenges and successes of international expansion. The methodology includes primary and secondary research, focusing on key areas such as Foreign Direct Investment (FDI), international trade theory, international strategy, cultural differences, and ethics and corporate social responsibility. Findings reveal Zara's strategic use of FDI for global expansion, including mergers, acquisitions, and joint ventures. The report explores Zara's application of international trade theories like free trade and specialization, and its innovative business model. It also analyzes Zara's international strategy, using models like Bartlett and Ghoshal to assess its efficiency, knowledge leverage, and responsiveness. The report addresses the level of adaptation and standardization across its global operations, and concludes with an overview of Zara's CSR and ethical considerations within its international business framework, including ethical theories and sustainability models.

INTERNATIONAL BUSINESS

EXECUTIVE SUMMARY
International business is defined as the activity of buying and selling of goods and
services across the nations and on cross border level. This features to the most critical and tough
job for every sector as the resources which are employee and engaged need to be very effective
regarding its working and operations. The present report is a medium which has been presented
with the key aim of analysing the investigation made in context to study how firms which are
engaged in global business need to undertake steps for producing and selling their goods and
services. Zara which is a biggest retailer of high end fashion clothes have been chosen as a part
of current research. The study highlights on both challenges and positive outcomes which a firm
has while conducting activities with each other. This is due to the reason by which Zara is
encompassing through tremendous changes and execution of several responsibilities which are
majorly inclined to produce products and promote them as per the customer’s demand, choice
and need.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
METHODOLOGY..........................................................................................................................1
FINDINGS.......................................................................................................................................1
Foreign Direct Investment (FDI)............................................................................................2
International Trade Theory.....................................................................................................4
International Strategy.............................................................................................................6
Cultural Differences...............................................................................................................8
Ethics and CSR.....................................................................................................................10
CONCLUSIONS............................................................................................................................13
REFERENCES..............................................................................................................................14

INDEX OF TABLES
Table 1: Standardization and Adaptation Matrix.............................................................................8
Table 2: Comparison of Zara’s Supply Chain Process with Conventional Wisdom.....................13

TABLE OF FIGURES
Figure 1: Zara's international presence............................................................................................3
Figure 2: Porter Diamond model.....................................................................................................6
Figure 3: Bartlett and Ghoshal model on Zara................................................................................7
Figure 4: Classification of ethical theories....................................................................................11
Figure 5: Difference between various ethical theories..................................................................12
Figure 6: Sustainability Model of Inditex......................................................................................13

INTRODUCTION
International business (IB) has been considered as the subject concern since last 20th
Century where inter-trade bonding and commercialisation are principle focus. International
business is defined as an extensive range of activities that involves business transactions across
cross level borders (Ethical Theories Compared, 2014). The present academic work is intended
to explore the foreign direct investment, technology transfer, Management of Transnational
Corporations (TNCs) and export activities of the company. For this, Zara which is one of the
most renowned fashion retailer firm founded in 1975 will be chosen. The selection of this
Spanish clothing company is viable due to its trade expansion across 62 nations of the world with
about 2,692 stores (Internalisation of Zara, 2009). The research will further proceed to study the
ways through which Zara consider the aspects such as cultural differences, Corporate Social
Responsibility (CSR) and ethics as a part of its global growth and internalisation.
METHODOLOGY
Present research work has been planned to investigate the key concepts of international
business in context of global firm, Zara which has been successfully flourished so drastically
since its inception. Primary and secondary are two sources of data collection methods and both
are extensively used in the current research in order to gain the successful outcome. For primary
research, general discussion will be carried out with the Zara customers and this will be inclusive
of discussion pertaining to their experience through Zara’s shopping and extent of satisfaction
(Gilligan and Hird, 2012). Major focus will be given on secondary research where Zara’s
website, books and journals pertaining to international business and studies made by scholars
regarding Zara’s internationalisation will be sourced out. The entire research will be conducted
on five key areas which are Foreign Direct Investment decisions, International Trade Theory,
International Strategy, Cultural Differences and Ethics and corporate social responsibility.
FINDINGS
The current section will be conducted on major facets of internationalisation which have
been investigated and studied in depth with context to Zara. On that basis, the findings have been
analysed and have been presented as follows:
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Foreign Direct Investment (FDI)
FDI refers to the process through which firm invests its assets directly into buildings,
equipment, or organisations of another nations. Unlike other industries, retail sector has high
demand in supply which is determined by customer’s demands which Zara here, assesses
through macro and micro analysis.
One of the major reasons of Zara’s global expansion is supported by FDI. This Spanish
fashion company is wholly owned and managed by Inditex and has shown recent jump in its
profits margins through fast international expansions which are evidenced since years. In 1988, it
had opened its first store in Oporto in northern Portugal and then in New York in 1989 and later
in Paris in 1990. This was expanded to 7 European nations’, the United States, and Israel
(Driffield, Jones and Crotty, 2013). The expansion was with the aim of becoming one among top
competitors and has been achieved successfully. The contribution of its FDI at continuous basis
leads it towards the global fame. Below given illustration depicts the international presence of
Zara through FDI:
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Figure 1: Zara's international presence
(Source : Kin, 2015)
Zara has followed various strategies in order to occupy the clothing market in different
countries of the world. Mergers and acquisitions, Wholly Owned Subsidiaries (WOS), Joint
Ventures (JVs) etc are some common ways. The associated Group has about 2,692 stores in
82 countries where about 500 are in Spain only (Crane and Desmond, 2002). Location of all its
stores is in commercial streets and central places. Inditex always uses approach to monitor its
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entire operations and hence uses WOS where Zara uses green field investment formula to
establish in another nation. The entry of Zara in Argentina in 1988, the use of its stated
policy breakdown the existing brands there (Chang, Van Witteloostuijn and Eden, 2010).
Further, the success was acquired through its expansion in Chile, the most developed country
in the continent, and the Group is also prospecting in Brazil, the largest market in the
continent, and in Venezuela and Mexico.
Joint Venture with Benetton Group is another expansion plan of Zara to cover
Italy. Both Zara and Benetton signed a contract in which they negotiate to build a new mixed
firm for the Italian market through a joint venture. Other JVs of Zara are Otto Versand which
is German textile firm, Canadian firm Reitmans etc.
Distribution channels act as key requirement to foster international trade.
However, Zara do not indulge in investing in distribution channels. Rather, centralised
logistic system is used where it uses means of organising the receipt of product from
suppliers and its onward delivery to the individual branches of a multiple retailing operation.
Research and Development (R&D) of Zara is very strong as due to fact where it meets
the fashion demand of customers across nations. It is involved with latest changes and imbibe
that it in its overall business processes in order to stay ahead with its competitors such as
H&M, Pulls and Bear, Topshop etc.
International Trade Theory
The rationale of using theories is to understand how international trade is carried out
between two people and entities. Combination of policies and theories constitutes international
trade by using different business strategies (Collin, 2003). These have been used by Zara as well
in order to acquire the various business operations across globe.
Free trade & specialisation
Zara occupy its position in selling fashion retailer goods and thereby attains
specialisation. This is the reason through which it is able to sell in surplus to other countries. The
specialisation facilitates Zara to expand trade in international countries and gain competitive
advantage.
Activities/operations across the global web
Zara has strong base for R&D and this is the reason why its activities are engineered to
improvise the global distribution process. The cited company uses extensively sophisticated
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Operations Research Models to establish every single shipment of stock which it delivers from
its two central warehouses to its 1,500 stores worldwide. For its legacy operations, Zara creates
shipment delivery system which is highly organised in terms of inventories. Major focus placed
by Zara is one IT implementation, adaptation work and the inventory distribution model. In
terms of marketing operations, Zara spends only 0.3% on its total revenues in marketing and
promotion (Internalisation of Zara, 2009). With regards to Information and Communication
technology, Zara maintains exclusivity where the cited firm utilises human intelligence and PDA
devices in order maintain hybrid model to get customer feedback and in-house designer’s needs.
Absolute advantage
This theory states the capability of firm regarding production of goods and services in
comparison to competitors with the use of same amount of resources. Zara is highly competitive
in business environment thereby is successful as well in gaining advantages over rivalry firms.
But, the absolute advantage is slightly different and hence is calculate according to type of
market in which Zara need to enter. For instance; lead time given to them for entering into
Chinese market is 6 months. In that time, they need to show their best when other companies are
also there in race.
Comparative advantage
It is defined as that extra effort which is required to be induced in order to gain better
position than competitors. Zara’s competitive advantage is to produce latest and fresh. It is
widely known for its fast production and strategy of distribution.
Factor endowment theory
As per this theory, economy is abundant in different kinds of resources. This is applying
to develop the competitive advantage. Zara uses all its resources in order to produce high end
resources and of the same they make use of quality fabrics, equipments and materials. Designing
of dresses are done on the basis of region or culture and accordingly resources are utilised.
First mover advantage
It is the initial moving of the firm as a part of their marketing strategy which majorly
sums up the technological leadership of the firm. Zara uses business model innovation. In 1975,
the first move of Zara was assessed through speed and responsiveness where it focuses on using
modes of expensive shipping which leads to successful for these 30 years.
Porter’s Diamond
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Figure 2: Porter Diamond model
(Source : Kin, 2015)
According to above illustration, Porter model lays prominence on locations and thereby
international platform is feasible for this firm. In focus of creating benchmark, Zara laid stress on
Italy. The weak background in terms of international dimension of Italy has been gained
advantage by Zara. The analysis shows that CEO of Zara is nowhere to relay on negative
association. Hence, in short factors such as location are crucial to examine and quote.
International Strategy
Taking effective and efficient decisions at the global level is a critical task and hence
various aspects are considered by Zara in managing its business operations all across the world.
Given below are some international strategy used as:
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Figure 3: Bartlett and Ghoshal model on Zara
(Source: Integrating Global supply and marketing chains, 2008)
By using the Bartlett and Ghoshal model on Zara, it has been ascertained that the firm is
doing effectively in all three shown dimensions. Firstly, in terms of efficiency, IT systems are
held of their time (Cierpicki, Wright and Sharp, 2000). On assessing its Knowledge Leverage
front, Zara always keep eye on its performance and demand inclinations. On the Responsiveness
front, cited firm permit all its managers to make instant decisions to deal with the failed products.
This model supports the Inditex to deal with every kind of market situation.
Level of adaptation and standardisation across globe
When business operates its business at international level, two alternatives are available
to them namely standardisation and adaptation. Opinions of supporters for standardization are
that desires of consumers tend not to vary all that much across different countries. Today, the
whole world is one big global market due to globalization (Integrating Global supply and
marketing chains, 2008). Therefore, the key of the global success is the standardization of a
brand image and products which gives a consistent brand image and identity to customers across
the world. This also makes no confusion of the brand to customers who travel frequently. Plus,
the standardization saves lots of budget of a company compared to the adaptation strategy
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Table 1: Standardization and Adaptation Matrix
Standardization Adaptation
Advantages Diminish costs of management
Easy association management
Reliable brand image (reduce
confusion of customers)
Gratify demands of diverse markets
Local brand image
Easy to adapt to laws and society
Disadvantages Firm to react to demands of a
market
No attempt to capitalize on profits
or sales in a exact market
Additional costs to acclimatise
Decentralization of organization
Products
Style and appearance are key aspects for developing products. However, growth of these
fashion brands leads to fill that gap by developing same apparels for all nations. Seasonal
differences and taste & preference however may vary at some places. Size may also occur as
another issue (Alexander and McCullough, 2001). For instance; Zara’s general fit is even
slimmer than the fit of H&M. It is as Zara is famous in Asian countries where women have a
very low waist-to-hip ratio whereas in America, it is not as popular because women have curvier
with bigger sizes.
Price
One of the most significant indicators of market positioning is price. For instance local
fashion brand of America sells at cheap rates whereas it is good at Asian and therefore, Zara
need to think over price aspect very effectively.
Place
Distribution is critically defined as POS which refers to as place of purchase or point of
sales. Adaptive environment is what classified as the retail organisation (Internalisation of Zara,
2009). Zara relay on standardisation strategy where displaying and selling goods are the key
aspect which need to considered effectively in order maintaining its position in overall market.
Promotion
The mode of standardisation of use of adaptive strategies for promotion has impact on
positive trends of these clothing companies. Every nation has different languages, environment,
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economy and promotional strategy. Zara focuses on social media platform so as to reach the
mass all over the world.
Cultural Differences
Main theorists and their theories for cultural indifferences
International business is developed by considering culture as the main factor. Zara
follows set of beliefs and assumption while producing high end clothing for different people on
the world. In order to manage the cross cultural management, effective decisions regarding need
to be taken so that cultural indifference may not impact the entire regional values, beliefs and
nationality (Dawson, 2001). According to Geert Hofstede, various dimensions of culture are
defined with context to Zara as follows:
Large versus small power distance
With large distance, Zara is focusing on small power distance so that decisions for the
people residing in different parts can be made genuinely.
Strong versus weak uncertainty avoidance
There are aspects where Zara needs to avoid those areas which made employee support
the belief of integration thereby offers autonomy to some extent.
Individualism versus collectivism
In consideration to the society where Zara is providing its services, it is required to
consider the introduction of any apparel by considering both individual and collectivism
approach (Kin, 2015).
Masculinity versus femininity
Zara need to consider the society and culture of both males and females and hence
accordingly produces by considering their taste, preference and quality.
Consumers
Zara is serving ample number of customers all across the world. The reason being serving
them relay on understanding and consideration of all those factors which affect the buying
behaviour as it varies from one nation to another (Converse, 2005). Zara is into producing
outfits which meet the need the demand and choice of all. This is the reason that endures
successful intervention of Zara as an international business in 72 countries.
Employees
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The key stakeholders who are responsible for driving the entire operations of Zara are
employees. International business means conducting actions in different parts of the world
therefore appointment of employees are made by considering the requirement of staff members
as well. This is the reason for which recruitments are made as per the region so that more
dedication and commitment of employees can be observed.
Ethics and CSR
Universalism v Cultural relativism
Human and their rights are biggest aspect which needs to be considered by every firm
while producing goods and services. Universalism relativism refers to the perception of
considering all culture and religion as a whole whereas in cultural relativism it is vice versa. In
consideration to this approach, there is thought which is carried by Zara in its working and
business.
Philosophies on Ethics- e.g. Utilitarianism, Kantian, Rights theories
10

Figure 4: Classification of ethical theories
(Source: Ethical Theories Compared, 2014)
11

Figure 5: Difference between various ethical theories
(Source: Ethical Theories Compared, 2014)
Approaches to social responsibility
Zara is always into delivering the values for customers. This is the reason that made it
topmost companies among the world. It is inclined to ensure CSR as well where most
prominent among is sustainable principles where green label strategy is followed (Husted and
Allen, 2006). It has objective of being fashionable by considering environment as the biggest
factor. Thus, they produce ecological clothing.
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Figure 6: Sustainability Model of Inditex
(Source: Kin, 2015)
Fair trade agreements with the supply chain and procurement/buying
Table 2: Comparison of Zara’s Supply Chain Process with Conventional Wisdom
Conventional Wisdom Zara’s Supply Chain Process
Expand designs based on
prediction.
Reach clientele.
Discover supply sources or
contract manufacturers.
Convey patrons to the store and
snoop to them at the point of sale.
Contract manufacture. Launch designs on customer
feedback.
Endorse and allocate. Produce, while off shoring some.
Achieve customers. Advertise online and offline by own
sequence stores.
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CONCLUSIONS
With the help of this report, it can be stated that international business is a biggest
platform where exchange of goods and services are made on the consideration of several factors.
These aspects are required to be considered by retail firms as well where through the help of this
report research; study on Zara has been conducted. The successful study on how it engages in
gaining successful outcome by fulfilling the demand and need of internal and external
stakeholders have been made with regards to present investigation.
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REFERENCES
Books and Journals
Alexander, K. and McCullough, J., 2001. Application of marketing principles to improve
participation in public health programs. Journal of community health. 6(3).pp. 216-222.
Cavusgil, S. T., Rammal, H. and Freeman, S., 2011. International business: the new realities.
Pearson Higher Education AU.
Chang, S. J., Van Witteloostuijn, A. and Eden, L., 2010. From the editors: Common method
variance in international business research. Journal of International Business Studies.
41(2).pp. 178-184.
Cierpicki, S., Wright, M. and Sharp, B., 2000. Managers' knowledge of marketing principles:
The case of new product development. Journal of Empirical Generalizations in Marketing
Science. 5(3).pp. 771-790.
Collin, W., 2003. The interface between account planning and media planning – a practitioner
perspective. Marketing Intelligence & Planning. 21(7). pp.440 – 445.
Converse, P. D., 2005. The development of the science of marketing: an exploratory survey. The
journal of Marketing. 15(17).pp. 14-23.
Crane, A. and Desmond, J., 2002. Societal marketing and morality. European Journal of
Marketing. 36(5/6).pp. 548-569.
Dawson, J. A., 2001. Viewpoint: retailer power, manufacturer power, competition and some
questions of economic analysis. International Journal of Retail and Distribution
Management. 29(1). pp.5–9.
Driffield, N., Jones, C. and Crotty, J., 2013. International business research and risky
investments, an analysis of FDI in conflict zones. International Business Review. 22(1).
pp. 140-155.
Gilligan, C. and Hird, M., 2012. International Marketing (RLE International Business): Strategy
and Management. Routledge.
Husted, B. W. and Allen, D. B.,2006. Corporate social responsibility in the multinational
enterprise: Strategic and institutional approaches. Journal of International Business
Studies. 37(6).pp. 838-849.
Online
Ethical Theories Compared. 2014. [Online]. Available through:
http://www.trinity.edu/cbrown/intro/ethical_theories.html. [Accessed on 23rd April,
2016].
Integrating Global supply and marketing chains. 2008. [PDF]. Available through:
<http://ocw.mit.edu/courses/sloan-school-of-management/15-220-global-strategy-and-
organization-spring-2008/lecture-notes/lec10.pdf>. [Accessed on 23rd April, 2016].
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